MUMBAI/NEW YORK (Reuters) - LyondellBasell filed a restructuring plan on Monday, rejecting a takeover bid from India’s Reliance Industries Ltd in favor of commitments from investors, including Apollo Management LP and Access Industries, to help the chemicals maker exit bankruptcy.
Lyondell filed for bankruptcy more than a year ago, hobbled by billions in debt, a sharp increase in oil prices and a decline in demand for its polymers and chemicals due to the global economic crisis.
Since then, LyondellBasell has reached agreement with its creditors to shed billions in debt, issue equity to debtholders and raise about $2 billion to finance its bankruptcy exit.
“We will have a new management team in place, we will have considerably less debt, and we will be adequately capitalized with the equity from the rights offering as well as exit financing,” said company spokesman David Harpole.
The company has rejected several offers from Reliance Industries, the most recent of which valued the petrochemicals firm at $14.5 billion, in favor of a plan supported by key creditor groups, said Harpole.
“The amended plan provides superior value, improves the financial stability of the reorganized company and is a confirmable plan,” said Harpole.
Stakeholders had rejected the Reliance proposals, betting their shares would be worth more in the future than the cash Reliance was offering, said a source familiar with the deal. It is doubtful Reliance will come up with another offer, said the source.
The company in February had reached a $450 million settlement with unsecured creditors over a lawsuit stemming from its 2007 leveraged buyout. The settlement helped clear the way for the company to put the final touches on its reorganization plan.
Private equity firms Apollo Management LP and Ares Management, along with industrial holding company Access Industries, have agreed to back a $2.8 billion rights offering in which Lyondell would sell 263.9 million Class B shares, according to the company’s disclosure statement filed early on Monday.
Investor Len Blavatnik led the 2007 buyout of the firm through New York-based Access Industries.
A disclosure statement lays out a comprehensive restructuring plan and would have to be approved by a bankruptcy judge before being sent to creditors and other stakeholders for a vote.
Apollo could invest up to $1.52 billion, while Ares could invest up to $475.7 million and Access can invest up to $805.9 million, the court documents showed.
Apollo would have the right to nominate three initial supervisory board members, while Access and Ares would have the right to nominate one initial supervisory board member, the filing showed.
Still, said Harpole: “We will have numerous shareholders (and) no entity will hold a majority of the outstanding shares.”
Lyondell plans to list its shares on the New York Stock Exchange once the reorganization plan becomes effective.
Investment bank Evercore, which is advising Lyondell, expects the company to emerge from bankruptcy on April 30, according to court documents.
A court hearing on the plan is scheduled for March 11.
The company would likely exit with some $5.17 billion in debt, according to court records. It had been weighed down with more than $20 billion in debt after its creation in a 2007 merger between Basell AF SCA and Lyondell Chemical Co.
Reliance, controlled by billionaire Mukesh Ambani, had raised its bid for Lyondell twice after making its first offer in November, sources have said.
Reliance’s offer was not sufficiently valuable to abandon the reorganization plan, Lyondell said in its filing.
It declined to comment on any specific aspects of the offer, saying only that the supervisory board spent more than three months evaluating the Reliance proposals.
Evercore values the company at $14.2 billion to $16.2 billion, according to court documents.
A deal would have raised Reliance’s presence in major markets such as the United States and Europe and catapulted it into the ranks of top global chemicals makers such as Saudi Arabia’s SABIC, Germany’s BASF AG and Dow Chemical Co.
But Reliance’s chances for success were clouded by the prospect that senior Lyondell creditors such as Apollo might take a loss at the price Reliance proposed and could gain more from an independent Lyondell.
Reliance’s escalating bids also raised worry among investors that India’s largest listed conglomerate, with interests in petrochemicals, refining, oil and gas and retail, might overpay.
“It’s not like Reliance was getting Lyondell for cheap. So at the last price the company offered, we don’t think it would have been a very good deal, even in the long term,” said Rajen Shah, chief investment officer at Angel Group in Mumbai.
“The rejection is actually a positive for Reliance,” he said, adding that Lyondell’s rejection could mean the company will look at other overseas options.
A LyondellBasell debt facility was trading almost unchanged on Monday, according to the Reuters Loan Pricing Corp. Shares of Reliance closed down 4.75 rupees, or 0.5 percent, at 1,005.2 rupees on the Mumbai market.
The case is In re: Lyondell Chemical Co, U.S. Bankruptcy Court, Southern District of New York, No. 09-10023.
Additional reporting by Sakthi Prasad in Bangalore and Emily Chasan in New York; Editing by John Wallace, Richard Chang and Lincoln Feast